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October 10, 1999

Hi/fn Shares Lose 60% of Value in 2 Days After Q1 Warning

By CBR Staff Writer

Semiconductor company Hi/fn Inc saw its shares continue their two-day free fall Friday after the company warned that revenue in the upcoming first quarter would see a major slump. The stock plunged $30.75, or 29%, Thursday after BancBoston Robertson Stephens first signaled trouble ahead. In the wake of a company conference call to address the concerns, the stock dropped a further $36.25, or 49%, on Friday, to close at $37.75. The drop of more than 60% in two days has shaved the communications chipmaker’s market cap down to $327m.

In the call with analysts, the company said that, although it expects operating results for the fourth quarter ended September 30 to exceed analyst expectations – which currently call for earnings of $0.37 per share – it will see a significant slowdown in business in the first quarter. Two of the company’s major customers, Lucent Technologies Inc and Quantum Corp, have said they will sharply reduce orders during the quarter. As a result, Hi/fn expects revenues for the first quarter to be in the range of $10m, compared to the $15m to $16m analysts are expecting in the fourth quarter.

Hi/fn, which had initially projected first-quarter revenues to be flat with the fourth quarter, said the reductions were largely unexpected, and were primarily due to inventory adjustments at the two companies. It added that, although such short-term adjustments at individual providers will occur, it sees no fundamental change in its business model. Although first-quarter earnings will no doubt now fall short of the original $0.38 First Call consensus, some analysts still feel the company will show a profit due to strong margins. The new First Call average estimate is for $0.18 in earnings.

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